IRVINE — Nona Morelli's II Inc. was delisted Thursday by Nasdaq officials, who said the leisure and entertainment company is now controlled by a Hong Kong gaming company that does not meet the market's standards.
The Irvine company sold 76% of its stock to Dragon Sight International Amusement Co. in May in exchange for a 40% stake in two Dragon Sight casinos in Macao. As a result, Nasdaq officials said, the company is considered a new listing.
As a new listing, the firm's stock must cost at least $3 a share. Nona Morelli's stock has not topped $2.80 in the last year. However, a company's stock can fall below the threshold after its initial listing, said Marc Beauchamp, a Nasdaq spokesman.
Nona Morelli's chief executive, Fred G. Luke, disputed the Nasdaq ruling, saying that the Irvine company's management remained the same after the deal. He said he will appeal the decision.
"I expected it [Nasdaq] to embrace the transaction, which significantly strengthens Nona's balance sheet and promises to result in future profitability and increased international interest, and not attack it," Luke said in a prepared statement.
Company executives said Nasdaq officials made it clear that they considered the sale of a controlling interest to Dragon a "backdoor listing." This maneuver, experts say, allows a company to become public without clearing all of the regulatory hurdles or disclosing its financial position.
"Backdoor listings are perceived by the underwriting establishment as companies that do not meet quality standards," said Fred Roberts, a board member of Nasdaq and president of F.M. Roberts Inc., a Los Angeles investment banking firm.
Nona Morelli's officials say that the transaction is legitimate.
"Dragon Sight doesn't have experience in U.S. markets, so they wanted to go through a U.S. company," said Nona Morelli's spokesman Geoffrey Plank. "Nona Morelli's on its own had the assets to remain listed on Nasdaq."
The company disclosed in documents filed with the Securities and Exchange Commission that the Hong Kong company can appoint six of Nona Morelli's seven board members. Kenneth R. Roth, former chief financial officer for Nona Morelli's, resigned from the board last month. Another director, Jonathan L. Small, is expected to leave the company soon, officials said.
Plank said Luke is not in danger of losing his job.
"There is a trust and working relationship with Mr. Luke," Plank said. "They [Dragon] wouldn't have wanted to invest in the company without him."
The company was an Italian food manufacturer when it first sold stock to the public in 1990. After Luke was appointed chief executive in 1993, the company began expanding into gaming ventures. Nona Morelli's acquired a 50% interest that year in a Vancouver, Canada, casino investment company.
In 1994, the company bought a Louisiana company that operated five bingo houses, all of which have shut down, a company spokesman said.
The company lost $1.4 million in 1992, $8.3 million in 1993 and $9.7 million in fiscal 1994. The company's losses in the nine months ended March 31 narrowed to $1.2 million.
"It is ironic that the asset acquisition which served to underpin the company's international gaming activities, and promises to accelerate its growth, has caused such a dilemma for Nasdaq," Luke said.
The stock, in its first day of trading over the counter Thursday, closed at $1.625, down 31.25 cents a share.